Given the following information: AE=C+I+G C=300+0.5(Y-T) 1=200 G=900 T=400 b. We know that an recessionary gap is taking place, where GAP=300, what is potential output
Given the following information: AE=C+I+G C=300+0.5(Y-T) 1=200 G=900 T=400 b. We know that an recessionary gap is taking place, where GAP=300, what is potential output (1 pt)? c. How much would be required to be spent (or cut) using government (G) expenditures to close the gap? (2 pts) d. Graph the AE/Y functions and identify the equilibrium, as well as potential output and label the axis (3 pts). Explain if government should increase or lower taxes to close the gap (2 pts)
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